Venus Tokenomics Upgrade v3.0 Proposal

[iceman]

Venus Tokenomics Upgrade v3.0 Proposal

[IDEA]

Venus Protocol is approaching a year since the previous tokenomics were ratified by the community and much has changed in the ecosystem at large. As a new market cycle commences it’s important for the community to adapt to changes in the environment to ensure continued growth.

After collecting feedback and ideas for the next iteration of the Venus Tokenomics, consulting key stakeholders in the ecosystem, and going through multiple rounds of discussion on topics such as risk, treasury, and product development we are publishing a draft for your consideration.

A few principles guided structuring community input into this model: rewarding and incentivizing protocol retention, reinvestment of value, creation of flywheels, embedding greater shortfall defense.

Following these principles, the key points of the new framework are as follows:

Key Points

1. XVS continues to be the core utility token of Venus with voting privileges attached capturing a growing source of protocol value

2. The XVS emissions will be curtailed by 10M, reducing the remaining emissions timeline from 4 years to 2 years, with the total supply capped at 19,745,109 XVS

3. A new SBT (soulbound token) will be issued, Venus′ Prime, which unlocks access to boosted yields across selected markets.

4. A minimum of $1mm equivalent XVS staked in the Venus Vault will be required to access liquidation by external parties

5. Updating the mechanics of the XVS Vault so only active Stakers capture protocol revenue simultaneously with voting rights. Withdrawal period will no longer capture rewards

XVS Emissions Schedule Adjustment

Currently selected markets are incentivized via additional XVS incentives, via daily emissions. These emissions were previously scheduled to run for a total of 6 years, with 4 years remaining, for a total supply of 30mm XVS. This proposal would cut those emissions by 2 years, thus reducing the emission period to 2 remaining years, resulting in a 20mm total supply. The daily XVS emissions schedules will remain intact. We may look to add governance to the markets selected for incentive reception with the launch of additional protocol features, but is not an immediate part of this tokenomics update.

Introduction of Venus Prime Soulbound Token (SBT)

In order to drive protocol retention and further a growing community of dedicated lenders and borrowers, a new mechanism for incentivizing loyalty has been devised using SBTs (soulbound tokens) called Venus Prime . Venus Prime tokens unlock access to variable boosted yields across selected markets as determined by the gross TVL supplied to the markets; combining the TVL power of supply and borrow (ie the sum of the absolute values of the supplied and borrowed amounts, if someone supplies $1k and borrows $500, they would have gross TVL evaluated at $1,500. The gross TVL is based on the daily average balance for the quarter). These SBTs cannot be transferred, bought or sold, and must be earned via the criteria laid out below. The supplemental yield will be paid in the currency in which it is borrowed or supplied, but based on the overall protocol revenue allocation. This is similar to the XVS Vault revenue capture, except paid in the selected supplied assets based on the TVL criteria.

Additionally, the TVL that boosted yields apply to will be capped to $1mm per SBT.

The boosted yield APRs will be applied equally to token holders based on their TVL criteria, and while the boost is based on the revenue collected each quarter, we anticipate yields to be boosted by 5 - 15%.

Venus Prime tokens will be issued in two forms:

Earned & Revocable: Venus Prime tokens may be earned by staking XVS in the vault for at least 90 days. The XVS vault does not allow for up-front staking, but rather Venus Prime tokens will be issued based on reputation based staking - that is once the staker has staked XVS for 90 days they will be issued the token. The stakers must maintain a minimum stake of 1,000 XVS tokens to qualify. If they unstake their tokens at any point the clock restarts. If they unstake after being issued the SBT, the token will be revoked and thus will have to restart the staking clock to be awarded the SBT again. .

OGs & Irrevocable: Long standing community members and protocol users may qualify for an irrevocable Venus Prime token, that are issued only if the holder is a user in the top 1,000 of active borrowers in terms of borrow transaction count (minimum borrow of $1,000) over a historical rolling period of 1 year, based on other discretionary criteria to be determined.

Other Use cases:

1. Discord SBT Token gating (only members with the SBT can access the Venus Prime Discord Channel)
2. Token gated in real life Parties and Events held by Venus
3. Other swag and perks and more

Updates to the XVS Vault Mechanics

As we have noticed, many XVS stakers are gamifying the Vault by staking their tokens and immediately requesting withdrawal (but not actually withdrawing the tokens). This allows them to continue receiving rewards, but without the 7-day cooldown period, and does not allow those stakers to participate in governance. As Venus is a DAO, we want active participants in governance, and we also do not want users to have access to a ‘free lunch’. The vault will be updated such that when stakers request withdrawals, they will no longer receive XVS vault rewards (and still will not be able to participate in governance). We hope this will incentivize users to keep their XVS staked and partake in governance more actively. Additionally XVS Vault can be auto-compounding by user request, such that the XVS staked is automatically restaked each payout period and automatically compounded.

Income Allocations and XVS Token Economy for Venus Protocol

|30%|Security Module|
|20%|XVS Vault rewards|
|20%|DAO Operation as directed by community|
|20%|Venus Prime*|
|10%|Paydown shortfall (bonds**)|

[ChristoWarriorCrypto]

Excelente propuesta me encantó

[NoOneVII]

Awesome Nice job…
Thank you for listening to the community’s demands

[farukss]

This is a tokenomics that definitely exceeded my expectation. Thanks to the team for their work.

[Bully_bee]

Really great effort and plans. Can’t wait to see it start.

[juapia]

Great initiative and proposal.

[Hiromatsu]

Here comes the VENUS grinch AGAIN…

1. not really new, but good to hear!
2. good idea
3. didn’t we agree we do not need and want a new token? (VRT… anyone remembers? Yeah… new name and kind of different approach - even if I think there were proposals that VRT should be used to give access to boosted yield.
4. I do not really like that idea… It kind of makes things more dangerous for the protocol to have fewer liquidators… The idea is noble because liquidators would become real stakeholders, but there is a downside also, because only very few people could be liquidators. I would suggest a community approach. Perhaps smart contract that does the liquidation and people could deposit funds and profit from liquidations.

my2cents.

[RicardoBullTraders]

Interesting incentive proposal for XVS through the new SBT tokens and its benefits of use.

With this new proposal 4.0 we will see a greater value of the native tokens and benefits to all Holders.

Additional the reduction of XVS emission by reducing the time from 4 years to only 2 years, increases its value proposition, ensuring its scarcity and demand.

[Joris]

@iceman

Updating the mechanics of the XVS Vault so only active Stakers capture protocol revenue

I don’t understand the meaning of what’s written below? Could you please explain to us with an example, what can we expect from this? Is this the passive income to Vault stakers, in which coin will this 20% Venus Vault be paid? I think this is the most important feature that gives XVS value but now it’s still a bit vague.
I think that I would prefer to add the 20% Venus Prime also to the vault or take 10% extra from Venus Prime.

Examples would help to understand this better.

Income Allocations and XVS Token Economy for Venus Protocol

|30%|Security Module|
|20%|Venus Vault|
|20%|DAO Operation as directed by community|
|20%|Venus Prime*| (I think I would like to see this go to Vault)
|10%|Paydown shortfall (bonds**)|

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I don’t like this SBT token, these perks should only be based on staked amount Venus tokens!
Big suppliers and lenders also got XVS tokens from the protocol. If they don’t have XVS anymore they have probably dumped their tokens onto the market. It would be wrong to give them perks. Let them buy back their XVS to receive perks.

Point 4. Like other users stated as well. Limiting liquidation parties, looks to me as a stability risk for the protocol!

[Serhat]

Bir an önce hayata geçirilmesi gereken harika bir güncelleme tebrikler aferin ekip

[Xvshodler]

Its good to reduce the supply to 20m. This adds value to current holders. It would also be nice to give back to OG holders who got liquidated with the last team via nft or some other method, not just going 12 months back, but the beginning of the token.

[vali]

The new tokenomics are great. Except the liquidation part.

• I don’t see the added value of whitelisting the external liquidators only if they have X staked XVS. It is first against the principle of a permissionless protocol and it is counterproductive as you limit the number of liquidators and if a black swan event occurs, you want to have a maximum of competing liquidators.
• Each liquidation will require more gas cause the protocol needs to check that the amount of staked XVS is > $1m, and also in case of a flash crash an allowed liquidator could temporarily lose its ability to liquidate at a critical moment.
• Venus ecosystem (team+vault stakers) already gets 50% of the liquidation reward. Why should we limit the beneficiaries of the other 50%? Will the team’s bots exempted from that limit? If yes, will the profits be shared with the vault holders?

Please, guide me with the logic behind, it is still blurry for me

[Venus_protocol]

Thanks for your constructive feedback.

3. The new token is not tradable/transferrable, it comes nowhere close in functionality to anything seen before on a major project.

4. We left out a piece regarding partner liquidations that will update in the following draft that will clear this concern up.

[Deniz]

Great work! and so excited about this!

I would recommend working with a second audit company (such as Hacken or Certic etc.) in order to crosscheck and completely cover the possible security deficiencies.

[bnb_bull]

Of course I support 100% of this proposal. On boarding more new users must be a priority now.
It is bear market and a unique opportunity to set us apart from other players.

[bnb_bull]

Permissionless does not refer to without governance. I do believe that 1M will get the liquidators get in the XVS game a bit more engaged.

[yacooll]

The liquidator measure makes a lot sense as to make easy money at Venus should be a skin into the game and not just someone wich dont use Venus to keep draining liquidity, this had happened for the last year already… anyone and bots being built to liquidate without worry about Venus.

a- a better solution would be allow only people wich has xx% staked into XVS vault, over a determined period to have acess to liquidations, limiting the liquidation to 100 000$ at once… this would allow more people to liquidate big wallets instead a single person liquidate …

b- VENUS OWN LIQUIDATOR VAULT- where community would deposit a bag of coins, wich would be used to liquidate, instead allow outside players to have such priviledge, draining Venus liquidity.(Can be started with some of the current reserves of VENUS), the only rule to acess this Vault should be has atleast 3000\10 000XVS… be skin in the game…

The Venus Prime isnt a token that will be sold or traded as i had understood, it will reward people wich uses the protocol, with more income into the staked\borrowed asset as i had understood. Soo isnt a new token at all.

XVS VAULT Mehchanics

Venus shouldnt damage the stakers at the vault wich stake and unstake right after, as the market is unstable… its normal people wanna to manage their positions with the XVS… and not loose money because it has a 7 days lockup… in last sentence would make something as Cake made in the past wich is a locking period … if claim before a fee will be deducted…

Soo in the general this sounds great news to Venus, as we will be doing a lot things into medium period. I believe just we need to check all possibles cenarios, wich for me the only issue i believe need to be adjusted is the “liquidation”…(limiting liquidation to whales, can bring back Team Bravo… or any other bad player to be eligible to liquidate at Venus…)

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Almost forgoted, BNB Validator…

Venus has currently more then Half of the coins required to assume a position as Validator, in fact we could already asssume those spot with around 350 000 BNB we can assume those … and start a new journey with outside revenue to the protocol… instead focus only at lending market revenue… wich is good only with Binance Events wich require BNB… I believe this is the best moment to start those Validator goal… instead burning the BNB We could use them to start this Validator, ( right now this could allow the protocol to get around 3000 BNB each month\100BNB daily…thats a 20 000$daily, and a 600 000$ potencial income each month…the revenue would help a lot the protocol to moove forward and grow …

[Ninja]

There is a valid case that users may want to withdraw XVS from vault, but will be penalized with no rewards for 7 days. That is not correct. If you believe users are gaming the system, then change the lock mechanism that a user can’t request withdraw after adding vault for 7 days. Give the rewards for 7 days and stop the rewards after 7 days. If it up to the user to withdraw after 7 days or add to vault again. After adding to the vault 7 day lock period starts again.

[XVS]

The adjustments in the loan protocol seem correct to me. To provide some vision I would like to comment on the use cases for the XVS token and how to get more users.

The XVS token is very scarce, it maintains a system of DEFI lending, stablecoin issuance, liquidations, it has huge potential to turn the entire Venus ecosystem into something much bigger if only some things were improved. As the core of the ecosystem, it needs to be protected and focused from there to everything else, whereas currently I feel like they leave it for last, i.e. just a governance token rather than a store of value.

I think XVS is better than BTC… it has a lot more use cases, it’s clean, it has a lot of advantages as digital money and a world store of value. I would like the XVS token to have the central role of the ecosystem at this stage, this will be the best way to attract new investors, show them that it can be one of the best reserves of value in the crypto world.

How to do it? With serious and mature actions that guarantee the trust of the users, a determined and well-communicated schedule that is respected as much as possible, with as few surprises as possible (especially unpleasant ones). Investors want to see that their money is taken seriously and is not going up in smoke. Venus has everything to be one of the best crypto world value reserves, it is time to improve it and carry out the objective, show the public that the reserves can grow and that they will be well invested to give them the confidence of having invested in the best DEFI space.

[iceman]

Hi all, I wanted to share some more in depth analysis and details of the specifics around the Prime Token SBT part of the new tokenomics, which even though it only is allocated 20% of the protocol revenue we believe is a critical element and should have outsized beneficial impacts to the protocol and tokenomics of XVS at large.

Updates to the Venus Prime Soul Bound Token

Big Takeaways:

1. $2.5 million in marginal revenue to the protocol
2. Stable Coin APY Boosts for borrow & supply of 2 - 7%
3. Estimating 5 - 10% total TVL growth for Venus Protocol (combined Supply & Borrow)
4. Estimating 50% increase in XVS staked
5. Qualified User Growth of 500% (defined as users both staking & providing TVL to markets)

The details for the Prime Tokenomics:

The Venus Prime Token is a segment of the new Venus Tokenomics V4 specifically designed to incentivize XVS staking and protocol usage, and in return for those members that qualify, they will receive a soul bound token, the Prime Token, which enhances their stable coin APYs by paying in cash back rewards 20% of the Venus Protocol Revenue (which was formerly used to buyback and burn XVS). There are two forms of the Prime Token, an ‘OG’ irrevocable token, and a revocable token which can be earned via staking XVS. We outline the details further on how to earn the Prime Token, however the cash back boosts apply to both versions of the Prime Token. One important thing to note - we are treating this as a pilot program whereby only a maximum of 100 Irrevocable Prime tokens and 1,000 revocable Prime Tokens will be issued during this pilot period (est. 6 months post production deployment). If you are a recipient of an Irrevocable Prime Token, you won’t have to qualify for the Revocable - and in fact will only receive the 1 OG token even if you qualify for both. From this pilot program we will be assessing the effectiveness of the tokenomics, analyzing the impact to the amount of XVS staked, protocol TVL, community engagement, and other qualitative and quantitative metrics. If successful, the maximum amount of tokens can be increased (by community consensus) to allow new entrants (both irrevocable and revocable).

The 100 OG’s to be issued Irrevocable Prime Tokens are based on the trailing 12 months of usage of the Venus Protocol plus staking XVS.

To qualify for the Prime Token you will have to stake XVS for a minimum of 90 days, and at least 1,000 XVS tokens. The staking mechanism is not based on optimistic staking, but rather you can claim the Prime Token once you have actually staked your 1k XVS for 90 days, whereupon the app will present you with the opportunity to claim the Prime Token. Just staking XVS, however, does not reward you on the value of your XVS staked, but rather on the amount of Supply and Borrow you provide to the protocol. This we call Qualified Value Locked (QVL). As a user with a prime token, you will get cash back rewards on your QVL, which effectively is a boosted APY. This means that when the boost is above the borrow rate, you will get paid to borrow!

There are 4 tiers for the staking, however, which can be modified by the community on a regular basis by vote. These tiers reflect a cap on your QVL. What this means is that if you are staking 1k XVS (Tier 1), and have supply of $200k and borrow of $100k, you will get cash back on the first $50k of your supply, and 100% of your $100k in borrow - for a QVL of $150k. The $150k of excess supply will get paid the standard APY rate for that market plus the XVS emissions (as per the updated emissions schedule). Based on our modeling exercise, the hope is that users in this situation will borrow additional money to purchase XVS to stake it to reach the next tier. The Prime Token, however, is revocable such that when you request a withdrawal of your staked XVS, if that amount drops your XVS below the bottom tier your Prime Token will be burned and you will have to restart the 90 day clock to claim it again. We believe this will create a stickiness to staking XVS such that it will be sufficiently disincentivizing to withdrawal for all qualified token holders.

After weeks of data modeling we have some exciting estimates to share, please note these are estimates and not to be taken as facts. We are basing these on several scenarios, of which this tiering system we decided was the most beneficial to the overall goals to start with. The intent is to have these tiers malleable based on community voting, to allow for changes as the community sees best fit.

Each tier requires a minimum amount of XVS to be staked (the Threshold) for at least 90 days to qualify. Once qualified, the supply and borrow balances are capped to a maximum level for fairness and balance of our users. Each tier is an incremental of additional QVL that users will be paid on, so at tier 2, users already have $150k of available QVL and now get an additional $750k for a total of $900k cap on QVL. All Tiers are paid the same boost rate, only the QVL cap is different at each level. Of note - these QVL balances only apply to the stable coin, BTC, BNB, BETH, and ETH markets.

Tier	Threshold (XVS Stake)	Supply TVL Cap	Borrow TVL Cap	Total QVL
1	1,000.00	$50,000	$100,000	$150,000
2	10,000.00	$250,000	$500,000	$900,000
3	50,000.00	$1,000,000	$2,000,000	$3,900,000
4	100,000.00	$5,000,000	$10,000,000	$18,900,000

User Journey Example:

Suppose you are a user with the following token data points;

XVS Staked	Supply Balance	Supply QVL	Supply APY	Borrow Balance	Borrow QVL	Borrow APY	Prime Boost APY
40,000	$1,200,000	$300,000	1.00%	$200,000	$200,000	-3.10%*	5.00%

*using averages from the selected markets current APY

Currently you are qualified for Tier 2, and assuming your 40,000 has remained in the Venus Vault for 90 days, you can now claim your Prime Token. At Tier 2, you can qualify $300k of your supply to be paid the boost, and up to $600k in borrow (but you only have $200k in borrow). So you would receive the following cash back boosts and net interest payments:

Supply * rate + supply QVL * boost - (Borrow * (Boost minus rate))

1,200,000 * 0.01 + 300,000 * 0.05 - (200,000 * (0.05 - 0.031)) = $30,800

With the current boost above the borrow rate, you are receiving a net benefit from borrowing (and this does not include the additional XVS emissions rewards). Because of this net positive borrowing, and you are close to the next tier 3 - you may want to borrow enough money to buy 10,000 XVS to stake and qualify for tier 3. Lets assume XVS price is $6, so you borrow $60,000 to buy XVS and stake - and after 90 days now you are bumped up to tier 3. Now your earnings look like this:

XVS Staked	Supply Balance	Supply QVL	Supply APY	Borrow Balance	Borrow QVL	Borrow APY	Prime Boost APY
40,000	$1,200,000	$1,200,000	1.00%	$260,000	$260,000	-3.10%*	4.50%

*using averages from the selected markets current APY

At tier 3, now 100% of your supply balance is qualified value locked, so you’ll earn the entire prime boost on those balances plus all of your borrow balances. Let’s suppose the prime boost drops by 0.5%, now the economics of your new investments look like this:

Supply * rate + supply QVL * boost - (Borrow * (Boost minus rate))

1,200,000 * 0.01 + 1,200,000 * 0.45 - (260,000 * (0.045 - 0.031)) = $69,640

By borrowing some money and stalking it to get to the next tier, you have over doubled your annual earnings with the Prime Boost!

With this in mind, and based on our datasets we have been utilizing for the models, we anticipate significant growth in users that are both staking and providing supply and borrow to the markets. This should drive value to the protocol, and those that are simply supplying and borrowing may also be enticed to buy XVS to stake it to qualify for one of the tiers - thus leading to further strength in the XVS Vault and tokenomics. By our estimates, supply may increase as much as 5% and borrow as much as 25%, leading to an increase in protocol revenue of ~ $2.5mm annually
(~100mm additional borrow @ 3.1% minus 55mm additional supply @ 1% )

A few graphs for illustrative purposes: